Mechanism triggering payout when a measurable physical parameter crosses a predefined threshold, without assessment of actual damage.
A parametric trigger conditions an indemnity payout on a measurable, objective physical parameter crossing a threshold, wind speed, seismic magnitude, rainfall depth, rainfall deficit, rather than on assessment of the damage actually suffered. When the observed parameter exceeds the contractual threshold, the indemnity is paid on a predefined scale, quickly and without loss adjustment. This mechanism is at the heart of parametric insurance, index-trigger cat bonds and the protection schemes of states and communities exposed to disasters. Its advantage is the speed and objectivity of settlement; its limitation is basis risk, the possible gap between the indemnity paid and the actual loss, when the parameter does not faithfully reflect local damage. Threshold calibration and index choice determine the balance between responsiveness and fidelity of cover.
A parametric cyclone cover paying a fixed amount once wind exceeds a threshold speed at a measuring point allows indemnification in days rather than months.
parametric trigger, déclencheur paramétrique, indice paramétrique, assurance paramétrique